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Procurement

LES SYSTÈMES EQUINOX INC.
v.
DEPARTMENT OF PUBLIC WORKS AND GOVERNMENT SERVICES
File No. PR-2006-045R

Order and reasons issued
Wednesday, June 1, 2011

TABLE OF CONTENTS

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IN THE MATTER OF a complaint filed by Les Systèmes Equinox Inc. pursuant to subsection 30.11(1) of the Canadian International Trade Tribunal Act, R.S.C. 1985 (4th Supp.), c. 47;

AND FURTHER TO a decision of the Federal Court of Appeal, which partly set aside decisions of the Canadian International Trade Tribunal dated February 14 and 19, 2007, and referred the matter back to the Canadian International Trade Tribunal with directions;

AND FURTHER TO a recommendation made pursuant to subsections 30.15(2) and (3) of the Canadian International Trade Tribunal Act that Les Systèmes Equinox Inc. be compensated for its lost opportunity by an amount equal to one quarter of the profit that it would have reasonably earned had it been the successful bidder for the provision of the point-of-sale system for the Correctional Service of Canada;

AND FURTHER TO the Canadian International Trade Tribunal’s preliminary indication of the level of complexity for the complaint case and its preliminary indication of the amount of the cost award.

BETWEEN

  

LES SYSTÈMES EQUINOX INC.

Complainant

AND

  

THE DEPARTMENT OF PUBLIC WORKS AND GOVERNMENT SERVICES

Government Institution

ORDER

The Canadian International Trade Tribunal hereby recommends that the Department of Public Works and Government Services compensate Les Systèmes Equinox Inc. in the amount of $322,377 for the opportunity that it lost to profit on the provision of the point-of-sale system for the Correctional Service of Canada.

In addition, the Canadian International Trade Tribunal hereby confirms its preliminary indication of the level of complexity for the complaint case and its preliminary indication of the amount of the cost award by awarding Les Systèmes Equinox Inc. costs in the amount of $4,100 in relation to these proceedings and directs the Department of Public Works and Government Services to take appropriate action to ensure prompt payment.

                    Diane Vincent
                    Diane Vincent
                    Presiding Member

                    Pasquale Michaele Saroli
                    Pasquale Michaele Saroli
                    Member

                    Jason W. Downey
                    Jason W. Downey
                    Member

Dominique Laporte
Dominique Laporte
Secretary

STATEMENT OF REASONS

1. On February 5, 2007, Les Systèmes Equinox Inc. (Equinox) filed a complaint with the Canadian International Trade Tribunal (the Tribunal) pursuant to subsection 30.11(1) of the Canadian International Trade Tribunal Act.1 The complaint, which contained multiple grounds of complaint, concerned a procurement (Solicitation No. 21120-053631/B) by the Department of Public Works and Government Services (PWGSC) on behalf of the Correctional Service of Canada (CSC) for the provision of a point-of-sale (POS) system.

2. On February 14, 2007, the Tribunal informed the parties that the complaint had been accepted for inquiry with respect to all but one of Equinox’s grounds of complaint. In response to Equinox’s request that the Tribunal reconsider its decision regarding the grounds that it accepted for inquiry, the Tribunal confirmed its February 14, 2007, decision in a letter to Equinox dated February 19, 2007.

3. On March 14, 2007, Equinox applied to the Federal Court of Appeal for judicial review of the Tribunal’s decision not to inquire into all the grounds of complaint that it had raised.

4. On June 20, 2007, the Tribunal issued its determination,2 in which it found that the complaint was valid, and recommended, as a remedy, the following:

. . . that PWGSC allow the current contract to continue, but that it not exercise any options. Should the requirement continue to exist after the initial contract period, the Tribunal recommends that PWGSC re-issue a competitive solicitation for the requirement in accordance with the provisions of the applicable trade agreements.

5. The Tribunal also awarded Equinox its reasonable costs incurred in preparing and proceeding with the complaint, which costs were to be paid by PWGSC.3

6. Both Equinox and PWGSC filed applications with the Federal Court of Appeal for judicial review of the Tribunal’s June 20, 2007, determination.

7. On January 29, 2008, the Federal Court of Appeal allowed, with costs, Equinox’s application for judicial review of the Tribunal’s decision not to inquire into all the grounds of complaint that it had raised.4 The Federal Court of Appeal partly set aside the Tribunal’s decisions dated February 14 and 19, 2007, and referred the matter back to the Tribunal with directions.

8. On March 7, 2008, further to a request made by Equinox, the Federal Court of Appeal directed that both applications for judicial review of the Tribunal’s June 20, 2007, determination be adjourned sine die pending the Tribunal’s determination on remand.

9. On March 26, 2008, further to the Federal Court of Appeal’s decision of January 29, 2008, the Tribunal initiated an inquiry in respect of Equinox’s ground of complaint which had previously not been accepted for inquiry.

10. On March 12, 2009, the Tribunal issued its determination, in which it found that the complaint, on that particular ground, was valid.5 Pursuant to subsections 30.15(2) and (3) of the CITT Act, the Tribunal took note of its recommendation in File No. PR-2006-045 and recommended, as a remedy, the following:

. . . that PWGSC compensate Equinox for its lost opportunity by an amount equal to one quarter of the profit that it would reasonably have earned had it been the successful bidder for the provision of the POS system for CSC.

11. The Tribunal recommended that Equinox and PWGSC negotiate the amount of compensation and report back to the Tribunal on the outcome. The Tribunal also awarded Equinox its reasonable costs incurred in relation to these proceedings (i.e. the proceedings resulting from the Federal Court of Appeal’s decision of January 29, 2008), which costs were to be paid by PWGSC. The Tribunal’s preliminary indication of the level of complexity for the complaint case was Level 3 and its preliminary indication of the amount of the cost award was $4,100. The Tribunal indicated that, if any party disagreed with its preliminary indications, it could make submissions to the Tribunal. The Tribunal retained jurisdiction to establish the final amount of the award.

12. Both Equinox and PWGSC filed applications with the Federal Court of Appeal for judicial review of the Tribunal’s March 12, 2009, determination. Further to a request made by PWGSC, the Federal Court of Appeal directed that the applications for judicial review of the Tribunal’s June 20, 2007, and March 12, 2009, determinations be heard together.

13. On October 21, 2009, the Federal Court of Appeal dismissed, with costs, PWGSC’s applications for judicial review of the Tribunal’s June 20, 2007, and March 12, 2009, determinations.6 It also dismissed, with costs, Equinox’s application for judicial review of the Tribunal’s March 12, 2009, determination.7

14. On March 26, 2010, Equinox advised the Tribunal that the parties were unable to agree on the amount of compensation and submitted its claim for compensation. On May 11, 2010, PWGSC filed its response to Equinox’s claim for compensation. On June 30, 2010, Equinox filed its reply to PWGSC’s response.

15. On November 9, 2010, Equinox filed a supplementary submission in support of its claim for compensation. It explained that the submission was intended to apprise the Tribunal of recent developments that were directly relevant to the issues raised in File No. PR-2006-045R and its claim for compensation. On November 18, 2010, PWGSC filed its comments on Equinox’s supplementary submission. On November 25, 2010, Equinox filed its final comments.

16. Equinox claims that it should receive $3,828,441 as reasonable compensation for the opportunity that it lost to profit on the provision of the POS system for CSC. PWGSC, for its part, submits that Equinox’s claim is overstated and that a reasonable amount of compensation is $166,415.

COMPENSATION FOR LOST OPPORTUNITY

17. The CITT Act and the Canadian International Trade Tribunal Procurement Inquiry Regulations8 do not provide any guidance regarding compensation matters.9 However, the Tribunal’s Procurement Compensation Guidelines (the Guidelines), revised in June 2001, read as follows:

2.2 Compensation awards will not be based on speculation or conjecture. The Tribunal recognizes that inherent in certain compensation recommendations will be the requirement to project into the future. However, in all circumstances, claims for compensation must be accompanied by credible economic, financial or other evidence.

. . .

3.1.2 In determining the amount of compensation to recommend, the Tribunal will attempt, insofar as is appropriate in the circumstances and bearing in mind any other relief that it recommended, to place the complainant in the position in which it would have been, but for the government’s breach or breaches.

. . .

3.1.4 . . . Where the Tribunal is unable to conclude that the complainant would have been awarded the designated contract, but concludes that the complainant lost the opportunity to participate actively or meaningfully in the procurement process as a result of the government’s breach or breaches, the Tribunal may recommend that compensation be awarded for the lost opportunity. . . .

. . .

3.2.1 Compensation awards for lost profit and lost opportunity may be reduced in accordance with the principles outlined herein.

. . .

3.2.3 Mitigation of Damages – The Tribunal will also consider whether the claimant could have avoided losses suffered as a result of the government’s breach or breaches. This principle is often referred to as the plaintiff’s “duty to mitigate” loss. In deciding what amount of compensation to recommend, the Tribunal will require the complainant to describe the steps that it has taken to limit or mitigate the lost profit that it suffered or may suffer as a result of the government’s breach or breaches. The Tribunal’s compensation recommendation may be reduced where a complainant has not acted reasonably in this regard.

. . .

3.2.5 Time Value of Money – Many contracts are performed over a period of time, with payment made accordingly. By contrast, a compensation award recommended by the Tribunal is made in a lump sum at a specific point of time, usually soon after the government’s breach or breaches and before performance under the contract would have taken place. In order to determine the appropriate compensation award where the contract in question involves future payment, the Tribunal will request submissions from the parties regarding what assumptions should be made in undertaking a “present value calculation” in that particular case. The purpose of a “present value calculation” is to determine the appropriate amount a complainant should receive today to accurately compensate for the profits that would have been earned in future periods, but for the government’s breach or breaches.

. . .

4.1 The complainant bears the onus of proof in establishing a compensation claim.

18. Thus, the goal is to place Equinox in the situation in which it would have been had it had the opportunity to participate actively and meaningfully in, and thereby potentially profit from, the re-tendering of the requirement for a POS system that the Tribunal determined should have taken place.10 As the Tribunal has stated in previous compensation orders, recommendations should not represent a windfall, but should reflect the actual loss suffered as a result of the government’s breach.11

19. In its determination of March 12, 2009, the Tribunal recommended that Equinox be compensated for its lost opportunity by an amount equal to one quarter of the profit that it would reasonably have earned had it been the successful bidder for the provision of the POS system for CSC. Therefore, in order to determine the amount of compensation that Equinox should receive, the Tribunal will first need to determine the profit that Equinox would reasonably have earned, had the requirement for a POS system been re-tendered and had it been awarded the contract for the provision of such a system.

20. In order to do so, the Tribunal will estimate the amount of revenue that Equinox would have earned from the contract and the total costs, both direct and indirect, that it would have incurred to earn this revenue. The resulting profit amount will then be divided by four to reflect Equinox’s lost opportunity to profit. Finally, the Tribunal will consider whether any adjustments should be made to take into account factors such as the time value of money and the duty to mitigate damages on the part of Equinox.

21. However, before proceeding to a consideration of these elements of the compensation exercise, the Tribunal considers it useful to recall certain aspects of CSC’s requirement for a POS system, including the procurement process conducted by PWGSC on its behalf and the ensuing contract awarded to Equinox’s competitor, LGS Group Inc. (LGS). The Tribunal will also determine the period over which compensation for Equinox’s lost opportunity to profit should be calculated.

CSC’s Requirement for a POS System

22. On June 30, 2005, PWGSC issued a Request for Proposal (RFP) on behalf of CSC for the provision of a new POS system for use in correctional institutions across Canada.12 More specifically, the RFP requested that bidders submit proposals to supply, install and support a new POS system by providing the necessary software, databases, applicable licences and peripheral equipment. The RFP also requested that proposals include the provision of software maintenance and support services, a help desk and technical support services for a period of five years (referred to in the RFP as the initial contract period) and for up to an additional three one-year periods during which the contract could be extended at PWGSC’s discretion.

23. The bidding period closed on August 15, 2005. Equinox, which was the incumbent supplier of the previous POS system used by CSC and which, at that time, continued to provide support for this system, submitted a bid in response to the RFP.

24. On December 11, 2005, PWGSC awarded the contract to LGS.

25. On November 18, 2010, PWGSC advised the Tribunal that it would not exercise any options under the contract awarded to LGS and that, as a result, all work performed by LGS under that contract would cease on December 10, 2010, at the end of the initial five-year contract period. It further advised that, upon the expiry of the contract, it would not re-issue a competitive solicitation for the services performed by LGS under that contract, as all the work would be done in-house by CSC (i.e. by CSC staff).13

Appropriate Compensation Period

26. Equinox claimed that it should receive compensation for its lost opportunity to profit in respect of three distinct periods: the initial five-year contract period, the following three option years and a subsequent seven-year extension. In this regard, it submitted not only that its right to compensation for the initial five-year contract was indisputable but also that it was entitled to compensation for its lost opportunity to profit during the three option years and a seven-year extension, claiming that, had it been the successful bidder for the provision of the POS system, it would have had an insurmountable advantage as the incumbent supplier and that PWGSC would simply have exercised the options to extend the contract without tender, as it has done in the past with Equinox, rather than abandoning the value of the installed POS system and going through the process of re-tendering the requirement.

27. Equinox submitted that, contrary to PWGSC’s position set out below, the Tribunal’s recommendation in this case did not limit compensation to the initial five-year contract period. Rather, it submitted that the proper interpretation of the Tribunal’s recommendation is that Equinox be treated as if it were the successful bidder for the provision of the POS system for CSC and that it be entitled to reasonable compensation flowing naturally from that contract. It further submitted that, had the Tribunal intended that compensation be limited to the initial five-year contract period, it would have so recommended.

28. Equinox also submitted that the Tribunal’s recommendation in this case did not contemplate Equinox having an opportunity to bid on the requirement, if re-tendered at the end of the five-year contract period, particularly as LGS, as the incumbent supplier, would have an overwhelming advantage in any tender due to the fact that no other supplier could service and upgrade the POS system that it installed.

29. Equinox added that, while PWGSC may have decided not to exercise any options under the contract awarded to LGS, it will nonetheless continue to operate, develop and expand the POS system installed by LGS after the contract expires. It therefore submitted that PWGSC will continue to have a requirement for the maintenance, development and support of the POS system and that its decision not to re-issue a competitive solicitation for this requirement is contrary to the Tribunal’s recommendation in File No. PR-2006-045 and further supports Equinox’s claim for compensation beyond the initial five-year contract period. It further submitted that, even if PWGSC did sever its relationship with LGS, this was not sufficient to establish that the same would have been done with Equinox had it been the successful bidder for the provision of the POS system. According to Equinox, PWGSC severed its relationship with LGS because of factors attributable entirely to LGS. It submitted that, had it been the successful bidder, its superior product, support and maintenance would have meant that it would have continued to provide POS services beyond the initial five-year contract period.

30. PWGSC, on the other hand, submitted that the Tribunal’s recommendation in this case is reasonably interpreted as providing Equinox compensation only for the loss of an opportunity to compete for the re-tendering of the five-year contract awarded to LGS. It submitted that, as a result of the Tribunal’s recommendation in File No. PR-2006-045, Equinox has not lost an opportunity to bid on any continuing requirement that may exist with respect to CSC’s POS system at the expiry of the five-year contract and therefore has suffered no loss to be compensated in respect of the three option years. It similarly submitted that Equinox has suffered no compensable loss in respect of a seven-year untendered extension to the contract. It added that, if a continuing requirement does not exist at the expiry of the five-year contract, then no supplier has lost an opportunity to compete for the supply of the requirement.

31. PWGSC submitted that, since it confirmed that it would not exercise any options under the contract awarded to LGS and that, upon expiry of the contract, CSC would be doing all the work in-house, CSC would no longer have a continuing requirement for the services of a third party and that, therefore, no competitive solicitation would be re-issued by PWGSC for such services. In this regard, it submitted that it did not interpret the Tribunal’s recommendation in File No. PR-2006-045 as obligating CSC to purchase services that can and will be performed by CSC staff.

32. In File No. PR-2006-045, the Tribunal recommended, as a remedy, that PWGSC allow the initial five-year contract with LGS to continue, but that it not exercise any options, and that, should the requirement continue to exist after the initial contract period, PWGSC re-issue a competitive solicitation for the requirement in accordance with the provisions of the applicable trade agreements.

33. In the present case, the Tribunal took note of its recommendation in File No. PR-2006-045 and then recommended that PWGSC compensate Equinox for its lost opportunity by an amount equal to one quarter of the profit that it would reasonably have earned had it been the successful bidder for the provision of the POS system for CSC. In the Tribunal’s view, it is clearly apparent that the intent of this recommendation was to compensate Equinox for its lost opportunity to profit only in respect of the initial five-year contract period.

34. By taking note of its recommendation in File No. PR-2006-045, the Tribunal was in effect acknowledging that, by way of that recommendation, Equinox would be provided with an opportunity to bid, and thereby potentially profit from, the tendering of any continuing requirement that might exist with respect to CSC’s POS system after the expiry of the initial five-year contract.

35. It would have been inconsistent for the Tribunal to recommend that PWGSC re-issue a competitive solicitation for any continuing requirement whereby potential suppliers, including Equinox, would be provided with an opportunity to bid and to recommend that Equinox also be compensated for a loss of opportunity to bid on any such continuing requirement. To interpret the Tribunal’s recommendations in this manner would result in Equinox being in a better position than it would have been in, but for the government’s breaches. Such a result was certainly not intended by the Tribunal.

36. Equinox argued that the Tribunal’s recommendation in this case did not contemplate it having an opportunity to bid on any continuing requirement, given that LGS, as the incumbent supplier of the POS system for CSC, would have an overwhelming advantage over other potential suppliers. However, as stated above, by taking note of its recommendation in File No. PR-2006-045, the Tribunal was expressly acknowledging that Equinox would be provided with an opportunity to bid on any continuing requirement that may exist after the expiry of the initial five-year contract. Moreover, had the Tribunal intended for Equinox to be compensated for the loss of any incumbency advantage that it might have enjoyed had it been the successful bidder for the initial five-year contract, it would have made a specific recommendation in this regard, as it has done previously.14

37. Equinox also argued that PWGSC’s decision not to re-issue a competitive solicitation for the continued operation, development and expansion of the POS system installed by LGS is contrary to the Tribunal’s recommendation in File No. PR-2006-045. The Tribunal notes that PWGSC confirmed that it would not exercise any options under the contract awarded to LGS and that this is consistent with the Tribunal’s recommendation in File No. PR-2006-045. However, the issue as to whether the “requirement” continues to exist despite CSC’s decision to do all work in-house and, by implication, whether PWGSC has fully complied with the Tribunal’s recommendation, is not relevant for the purposes of the current compensation exercise and, in any event, is not one for which the Tribunal possesses jurisdiction. There is no recourse provided in the CITT Act or the Regulations where a government institution chooses not to implement recommendations made by the Tribunal. As stated by the Federal Court of Appeal in Siemens Westinghouse Inc. v. Canada (Minister of Public Works and Government Services),15 the Tribunal only possesses a recommendation power in respect of procurement complaints, and the enforcement of such recommendations is not within the Tribunal’s jurisdiction.

38. Therefore, if Equinox is of the view that PWGSC has not fully complied with the Tribunal’s recommendation in File No. PR-2006-045, its recourse lies elsewhere. In the Tribunal’s view, it would be inappropriate for it to interpret its recommendation in this case in a manner that is inconsistent with the intent of that recommendation for the sole purpose of attempting to attenuate any loss suffered by Equinox as a result of an alleged failure on PWGSC’s part to fully comply with the Tribunal’s recommendation in File No. PR-2006-045. In the Tribunal’s view, such an approach would be tantamount to the Tribunal enforcing its recommendation.

39. In light of the foregoing, the Tribunal will confine its determination of the amount of compensation that Equinox should receive for its lost opportunity to profit to the initial five-year contract period.

Gross Revenue

40. In order to estimate the amount of revenue that Equinox would have earned, had the requirement for a POS system been re-tendered and had it been awarded the initial five-year contract for the provision of such a system, the Tribunal will rely primarily on the prices submitted by Equinox in its proposal and the actual amount of products purchased and services performed under the five-year contract awarded to LGS. Before addressing each revenue item separately, the Tribunal will address Equinox’s argument that the amount of compensation that it receives should reflect the growth in the number of prisons, as well as the development of new interfaces and applications for the POS system.

Growth Factors

41. Equinox submitted that, had it been the successful bidder for the provision of the POS system for CSC, it would have earned additional revenue as a result of growth in the number of prisons, the development of new software interfaces to transfer data between the POS system and other CSC applications, and the development of new uses or applications for the POS system.

42. With respect to the number of prisons, Equinox submitted that there is no reason to doubt that CSC would have grown by at least five new institutions over the 10 years starting after the expiry of the initial five-year contract period. In subsequent submissions, Equinox referred to a report issued by the Parliamentary Budget Officer,16 which estimated that 13 new facilities would be built and functioning by fiscal year 2015-2016. It also filed news releases and articles which, it claimed, confirmed that the government is taking steps to expand the prison facilities.

43. With respect to the development of new software interfaces and applications for the POS system, Equinox submitted that such developments were specifically provided for in the RFP17 and were also a normal part of its previous contracts with CSC. It submitted that there is no doubt that the development of the new interfaces and applications specified in the RFP would have been awarded to Equinox by contract amendments during the initial five-year contract period and that they would have been successfully installed.

44. Equinox submitted that the fact that CSC did not improve on the POS system installed by LGS through the purchase of new interfaces and applications is a result of LGS’s inability to make its system work and the impact of the Tribunal’s recommendation that the requirement be re-tendered at the expiry of the initial five-year contract. It submitted that, had it been the successful bidder, CSC would not have faced the same constraints and would have engaged in the same level of development for interfaces and applications that Equinox had experienced in its previous contracts with CSC. It added that Equinox’s lower bid price compared to LGS’s would also have meant that CSC would have been in a position to use those savings to implement the new interfaces and applications specified in the RFP earlier.

45. PWGSC, for its part, submitted that no new prisons had been built during the period where LGS held the initial contract and that, since the Tribunal’s recommendation in this case is reasonably interpreted as providing Equinox compensation only for the loss of an opportunity to compete for the re-tendering of the five-year contract awarded to LGS, Equinox should not receive compensation for losses associated with any growth in the number of prisons that may occur after the expiry of the contract held by LGS.

46. PWGSC also submitted that Equinox had suffered no loss with respect to the alleged sale of new software interfaces and applications. It noted that the “Cost Schedule for Deliverables and Services” (Cost Schedule) found at Annex D to Part B of the RFP, which describes the goods and services to be procured under the contract, did not include the new interfaces and applications. It submitted that, while the RFP specified that these new interfaces and applications could be ordered by contract amendment, no such amendment has occurred and no purchase of new interfaces and applications has been made by CSC. It therefore submitted that the Tribunal’s recommendation could not reasonably be interpreted to provide compensation for items not covered by the contract awarded to LGS and not actually purchased.

47. As stated above, the Tribunal will determine the amount of compensation that Equinox should receive for its lost opportunity to profit only in respect of the initial five-year contract period. Therefore, it follows that any growth in the number of prisons that might take place after the expiry of the initial five-year contract would not be relevant to the current compensation exercise. Furthermore, PWGSC stated that no new prisons had been built during the period where LGS held the initial contract—a fact which Equinox appears to acknowledge.18

48. Accordingly, the Tribunal finds that, had Equinox been the successful bidder, it would not have earned additional revenue from an increase in the number of prisons during the initial five-year contract period.

49. With regard to the development of new software interfaces and applications for the POS system, the Tribunal notes that, although such developments were mentioned in the RFP, it was by no means guaranteed that they would actually be implemented. The RFP only stipulated that these new interfaces and applications “may” be ordered by separate contract amendment.19 According to PWGSC, no such contract amendments occurred, and no new interfaces and applications were purchased by CSC.

50. The Tribunal understands that the objective is to attempt to place Equinox in the situation in which it would have been had it been the successful bidder and that, as such, relying solely on LGS’s experience under the contract may not be appropriate. However, in this case, despite Equinox’s assertions that it had developed new interfaces and applications for CSC under previous contracts, that LGS was unable to make its POS system work and that CSC was constrained by the Tribunal’s recommendation to re-tender the requirement, the Tribunal is not persuaded that the development of the new interfaces and applications mentioned in the RFP would have been undertaken, had Equinox been the successful bidder. It is quite possible that, during the initial five-year contract period, CSC did not see a need for the implementation of new interfaces and applications.20

51. The Tribunal also notes that, as the new interfaces and applications mentioned in the RFP had not, as of the date of the parties’ submissions, been implemented by PWGSC, any future requirement in this respect could be the subject of a competitive solicitation. This would be consistent with the Tribunal’s recommendation in File No. PR-2006-045.

52. For the foregoing reasons, the Tribunal is of the view that, had Equinox been the successful bidder, it would not have earned additional revenue resulting from the development of the new interfaces and applications mentioned in the RFP. Accordingly, the Tribunal will limit its consideration to the revenue that Equinox would have earned with respect to the provision of the goods and services specifically included in the Cost Schedule of the RFP.21

National Headquarters Installation

53. Item No. 001 of Table 1, “Initial Installations and Software”, to the Cost Schedule was essentially for the supply, installation and acceptance testing of the POS system at CSC’s national headquarters in Ottawa, Ontario, and included the provision of certain specified documentation and peripheral equipment.

54. In its proposal submitted in response to the RFP, Equinox included an amount of $------ for this item. Both parties are in agreement with this amount. Therefore, the Tribunal accepts that Equinox would have received this amount if it had been the successful bidder for the provision of the POS system for CSC.

POS System Software

55. Item No. 002 of Table 1 to the Cost Schedule was for the provision of an entity-wide software licence following completion of the testing of the POS system at CSC’s national headquarters in Ottawa.22

56. In its proposal, Equinox included an amount of $----- for this item. However, in response to a clarification request from PWGSC, Equinox explained that it had understood this item as only pertaining to the provision of a software licence for CSC’s national headquarters and that the amount that it had included in its proposal reflected this understanding. It then provided PWGSC with a revised amount of $------- for the provision of an entity-wide software licence. It is this revised amount that Equinox included in its claim for compensation.

57. PWGSC submitted that it would be akin to bid repair to use Equinox’s revised amount for purposes of determining compensation. It noted that, in upholding Equinox’s complaint, the Tribunal found that PWGSC had, without explanation, added a significant amount to Equinox’s financial proposal, which gave rise to a reasonable apprehension of bias against Equinox. It therefore submitted that it would be unreasonable for the Tribunal to determine the amount of compensation that Equinox should receive by adding a significant amount to the price actually proposed by Equinox for the provision of a software licence.

58. Equinox submitted that its clarification, which provided PWGSC with a revised amount for the provision of an entity-wide software licence, was not rejected by PWGSC at the time at which it was made. It noted that, in the Government Institution Report, PWGSC had even stated that Equinox’s revised amount significantly underestimated the real cost of the software licence. It further submitted that the Tribunal had made no finding that Equinox’s clarification constituted bid repair.

59. The Tribunal notes that, while it determined that Equinox’s proposal, as it pertained to item No. 002 of Table 1 to the Cost Schedule, was non-compliant with the mandatory requirements of the RFP,23 it did not indicate whether the clarification would have constituted bid repair. In any event, the Tribunal is of the view that the issue of whether the clarification constituted bid repair is not relevant to this compensation exercise.

60. As stated above, the goal of this compensation exercise is to attempt to place Equinox in the situation in which it would have been, had it had the opportunity to compete for the re-tendering of the requirement for a POS system that the Tribunal determined should have taken place. In the Tribunal’s opinion, had the requirement been properly re-tendered, there is no doubt that Equinox would have included, in its proposal, the revised amount for the entity-wide software licence as opposed to the original amount, which mistakenly only pertained to the provision of a software licence for CSC’s national headquarters.

61. Therefore, the Tribunal accepts that, had it been the successful bidder, Equinox would have received $------ for the provision of an entity-wide software licence.

Software Maintenance and Support

62. Item No. 001 of Table 2, “Software Maintenance & Help Desk Telephone Support Services”, to the Cost Schedule was for the provision of software maintenance and support on the licensed software. Bidders were required to provide prices for this service on a quarterly basis for each year of the contract period (i.e. the initial five-year period and three option years).

63. In its proposal, Equinox included an amount of $--- per quarter for each institution (i.e. prison) for the duration of the contract period. In its claim for compensation, Equinox estimated that it would have received a total amount of $--------- for the initial five-year contract period, on the basis of 51 institutions and CSC’s national headquarters (for a total of 52 active installations). In this respect, it later noted that PWGSC had indicated, in amendment No. 003 to the RFP,24 that CSC’s national headquarters test site would remain operational. In its view, this meant that there were a total of 52 active installations.

64. PWGSC estimated that Equinox would have received a total amount of $---------- for the initial five-year contract period, on the basis of 51 institutions.

65. In amendment No. 003 to the RFP, PWGSC provided the following response to a question regarding whether the POS system that was set up for testing at CSC’s national headquarters would be removed at the end of testing: “The equipment used to test the POS System at CSC’s National Headquarters in Ottawa will remain there after the testing is completed.”25 The Tribunal is of the view that this response reasonably indicates that CSC’s national headquarters test site would remain operational after the testing was completed and that software maintenance and support would therefore have been required in respect of 52 installations.

66. Therefore, the Tribunal accepts that, had it been the successful bidder, Equinox would have received $------ for the provision of software maintenance and support on the licensed software.

Help Desk and Telephone Support

67. Item No. 002 of Table 2 to the Cost Schedule was for the provision of help desk and telephone support services to CSC end users. Bidders were also required to provide prices for this service on a quarterly basis for each year of the contract period.

68. In its proposal, Equinox included an amount of $--- per quarter for each institution for the duration of the contract period. In its claim for compensation, Equinox estimated that it would have received a total amount of $------- for the initial five-year contract period, on the basis of 52 active installations.

69. PWGSC estimated that Equinox would have received a total amount of $---------- for the initial five-year contract period, on the basis of 51 institutions.

70. For the same reasons as mentioned above, the Tribunal is of the view that help desk and telephone support services would have been required in respect of 52 installations. Therefore, the Tribunal accepts that, had it been the successful bidder, Equinox would have received $------- for the provision of these services.

Professional Services and Equipment Repair

71. Item Nos. 001 to 003 of Table 3, “Professional Services and Equipment Repair”, to the Cost Schedule were for the provision of “Installer or Trainer”, “Programmer or Developer” and “Peripheral Equipment Repair” services respectively. These services were to be provided primarily in relation to the installation, maintenance and repair of the POS system in all of CSC’s institutions. Bidders were required to specify per diem rates for item Nos. 001 and 002 and hourly rates for item No. 003 and, this, for each year of the contract period.

72. In its proposal, Equinox specified a per diem rate of $---- for item Nos. 001 to 003 for the duration of the contract period, despite the fact that bidders were required to specify hourly rates for item No. 003. Equinox’s proposal also introduced item No. 001-A, “Installer or Trainer (first hour on site) (minimum 1 hour)”, which was in addition to item No. 001 and specified a per diem rate of $------.26

73. In its claim for compensation, Equinox estimated that it would have received a total amount of $----------27 in relation to the provision of “Installer or Trainer” services. It obtained this figure by utilizing the per diem rates specified in its proposal at item Nos. 001-A and 001 to determine the cost of a typical 10-day canteen installation and the per diem rate specified at item No. 001 to determine the cost of a typical 5-day SGMP installation (that would coincide with a canteen installation) and then multiplying these amounts by 51 institutions for the canteens and by 9 institutions for the SGMP programs. Equinox’s claim for compensation did not include any amount for the provision of “Programmer or Developer” or “Peripheral Equipment Repair” services.

74. PWGSC submitted that, for purposes of estimating Equinox’s revenues, CSC’s actual expenditures (i.e. LGS’s revenues) had to be adjusted to reflect the different prices proposed by Equinox. It first estimated the number of days or hours (as appropriate) of professional services supplied by LGS from December 11, 2005 (date of contract award), to April 7, 2010 (the date on which CSC provided an account of expenditures under the contract awarded to LGS), by dividing CSC’s actual expenditures during this period by LGS’s average per diem or hourly rates for the initial five-year contract period. The resulting number of days (for item Nos. 001 and 002) and hours (for item No. 003) were then multiplied by an adjustment factor to estimate the number of days and hours that would have been supplied over the entire five-year contract period. It then multiplied the adjusted number of days and hours by the actual rates contained in Equinox’s proposal. However, PWGSC disregarded the per diem rate specified by Equinox at item No. 001-A, given that the Tribunal had found that the addition of this new item failed to comply with the mandatory requirements of the RFP. It also converted Equinox’s per diem rate for item No. 003 into an hourly rate. Adopting this approach, PWGSC estimated that Equinox would have earned $--------- in revenue for professional services over the initial five-year contract period.28

75. In response, Equinox submitted that, if it had been the successful bidder, it would have charged for the “Installer or Trainer” services on the basis of the per diem rates specified in its proposal (i.e. including the per diem rate for item No. 001-A) multiplied by the time actually worked. It submitted that, even if PWGSC’s approach were appropriate, which it denies, its calculations are wrong, as the number of days of professional services that it estimated for item Nos. 001 and 002 are lower than the number of days reported in a document provided by PWGSC.29 It further submitted that the adjustment factor used by PWGSC should be increased to account for a nine-month period at the beginning of the initial five-year contract period where LGS failed to properly install its POS system. It therefore submitted that, properly represented and adjusted, PWGSC’s estimate of the revenue that Equinox would have earned would be $-------.

76. The Tribunal agrees, in principle, with PWGSC’s approach to estimating the revenue that Equinox would have earned had it been the successful bidder. Although the Tribunal recognizes that relying on LGS’s experience under the contract may not be determinative of what would have actually occurred, had Equinox been the successful bidder, it is of the view that it provides the best approximation in the present circumstances. The number of installations to perform, the relatively short period of time within which to complete these installations and the likelihood of encountering difficulties were all factors which made it more difficult for Equinox to estimate with any degree of precision the amount of professional services that it would have rendered had it been awarded the contract. In this respect, the Tribunal notes that the number of days and hours of professional services actually supplied by LGS are significantly higher than Equinox’s estimate of what it would have supplied in its claim for compensation.

77. While PWGSC estimated the number of days and hours of professional services supplied by LGS by dividing CSC’s actual expenditures by LGS’s average per diem and hourly rates,30 there was no need to proceed in this manner, as the actual number of days and hours were readily available. On the basis of the information available on the record,31 the Tribunal finds that LGS supplied a total of ----- days of “Installer or Trainer” services, -- days of “Programmer or Developer” services and --- hours32 of “Peripheral Equipment Repair” services between contract award and November 18, 2010. The Tribunal notes that these amounts are lower than what Equinox claimed33 was reported on the record, as they account for services that were presumably requested but later cancelled and, therefore, never received.

78. In order to estimate the number of days and hours of professional services that would have been supplied over the entire five-year contract period (i.e. December 11, 2005, to December 10, 2010), the Tribunal multiplied the above figures by an adjustment factor of 1.012.34 This results in an adjusted total of ----- days of “Installer or Trainer” services, ----- days of “Programmer or Developer” services and ---- hours35 of “Peripheral Equipment Repair” services. The Tribunal will not make any further adjustments to account for a nine-month period at the beginning of the initial five-year contract period where Equinox claimed LGS failed to properly install its POS system. In the Tribunal’s view, it does not matter when the POS system was actually installed—only that it was actually installed. Even if Equinox had installed its POS system earlier, this does not mean that it would have spent more time on the installation.

79. In order to estimate the total amount of revenue that Equinox would have earned for professional services had it been the successful bidder, the adjusted totals set out above must be multiplied by the rates specified by Equinox in its proposal. However, the Tribunal will not consider the per diem rate specified by Equinox at item No. 001-A, given that it has already determined that the relationship and interplay between item No. 001 and item No. 001-A are not readily apparent from Equinox’s proposal and that this new item effectively precluded the possibility of calculating a single per diem rate for “Installer or Trainer” costs.36 Therefore, multiplying the adjusted totals set out above by a per diem rate of $--- (for item Nos. 001 and 002) and by an hourly rate of $--37 (for item No. 003) and then adding amounts of $---- for parts and $---- for shipping (both relating to item No. 003), results in a total amount of $----------.

80. Accordingly, the Tribunal finds that, had it been the successful bidder, Equinox would have received $------- for the provision of professional services.

Peripheral Equipment

81. Table 4, “Estimated Peripheral Equipment Purchases”, to the Cost Schedule provided a list of various peripheral equipment required for the installation and ongoing operation of the POS system by CSC. Bidders were required to specify prices for each of the 11 items in the table for each year of the contract period.

82. In its proposal, Equinox specified prices for each of those 11 items, which remained the same for the duration of the contract period, and added prices for a significant number of new items, including various software components.

83. In its claim for compensation, Equinox estimated that it would have received a total amount of $--------- in relation to the provision of peripheral equipment for the canteens and the SGMP programs. It obtained this figure by estimating the volume of peripheral equipment that would have been purchased by CSC for all institutions throughout the initial five-year contract period. In reaching this estimate, Equinox made two important assumptions. First, it assumed that, because the prison environment is particularly harsh, the peripheral equipment would have been replaced on a relatively short cycle. Second, it assumed that CSC would have purchased --------------------------- instead of the ------------ that were specified in the RFP. It submitted that the longer life cycle of the ----------------------------- justified the added cost and that CSC would certainly have opted for this upgrade.

84. PWGSC submitted that, because different peripheral equipment was proposed by LGS and Equinox, and because additions were made to LGS’s list of available equipment for which Equinox did not propose a price, prices were not available from Equinox for several of the items actually purchased by CSC. It therefore submitted that the approach that it used to estimate Equinox’s revenues from professional services was not appropriate for estimating its revenues from sales of peripheral equipment. It submitted that, in the alternative, Equinox’s revenues could be estimated by taking CSC’s actual total expenditures for peripheral equipment (i.e. LGS’s sales) from contract award to April 7, 2010, and then applying an adjustment factor to estimate the total expenditures that would have been made over the entire five-year contract period. Using this approach, PWGSC estimated that Equinox would have earned $-------- in revenue from sales of peripheral equipment over the initial five-year contract period.

85. In response, Equinox submitted that, regardless of the fact that LGS and Equinox proposed different peripheral equipment, this equipment still performs the same function and the equipment proposed by Equinox is the one that would have been provided had it been the successful bidder. It submitted that, if Equinox’s peripheral equipment prices were applied to LGS’s peripheral equipment sales units (as of April 7, 2010), the estimated revenue would be $-------.

86. It also submitted that the adjustment factor used by PWGSC should be increased to account for the first nine months of the initial five-year contract period during which LGS failed to properly install its POS system and therefore had no peripheral equipment sales. It therefore submitted that, by applying the proper adjustment factor, Equinox’s sales of peripheral equipment over the initial five-year contract period would have been $---------.

87. The Tribunal is of the view that the proper approach for estimating the revenue that Equinox would have earned from peripheral equipment sales is to apply Equinox’s prices to LGS’s sales units (i.e. the number of units actually purchased by CSC). This is consistent with the approach adopted by the Tribunal with respect to professional services and also seems to have been recognized as appropriate by Equinox.38

88. Although Equinox submitted that its estimated revenue would be $--------- under this approach, it did not present any evidence in the form of prices or calculations to support this figure. Notwithstanding this lack of supporting evidence, the Tribunal was able to obtain a similar revenue amount by matching the equipment actually purchased by CSC from contract award to April 7, 2010,39 with what it believed to be identical or similar Equinox equipment and then multiplying the corresponding Equinox prices by the number of units actually purchased.

89. However, the Tribunal notes that it was only able to obtain this result by assuming that CSC would have purchased -------------------------- instead of -------------. In the Tribunal’s view, it is pure speculation to say that CSC would have opted for this upgrade, especially in light of the fact that this upgraded product was not mentioned in the RFP and was not actually purchased from LGS. Therefore, by deducting an amount which reflects the price differential between these two products for the number of units actually purchased by CSC from contract award to April 7, 2010,40 from Equinox’s estimate of $-------, a revised estimate of $------- was obtained.41

90. In order to estimate the revenue that Equinox would have earned over the entire five-year contract period, the Tribunal needs to multiply the revised estimate above by an adjustment factor of 1.156.42 This results in an adjusted estimate of $----------. The Tribunal will not make any further adjustments to account for a nine-month period at the beginning of the initial five-year contract period during which LGS allegedly failed to properly install its POS system. Even if Equinox claims that its prior experience demonstrates that it would have installed the POS system without delay, the Tribunal is not persuaded that this would have been the case.

91. Accordingly, the Tribunal finds that, had it been the successful bidder, Equinox would have earned $------- in revenue from sales of peripheral equipment.

Total Revenue

92. Taking into consideration the revenue amounts indicated above, i.e. an amount of $------- for the installation of the POS system at CSC’s national headquarters, an amount of $------- for an entity-wide software licence, an amount of $------- for software maintenance and support, an amount of $--------- for help desk and telephone support services, an amount of $------- for professional services and an amount of $---------- for peripheral equipment, the Tribunal finds that, had Equinox been the successful bidder, it would reasonably have earned $2,532,009 in revenue.

Costs

93. The Tribunal must now estimate the total costs (i.e. both direct and indirect costs) that Equinox would have incurred to earn the above revenue had it been the successful bidder for the provision of the POS system for CSC.

National Headquarters Installation

94. Equinox claimed that material costs (i.e. peripheral equipment costs) relating to the installation of the POS system at CSC’s national headquarters would have been $------.43 PWGSC submitted that Equinox’s claim for compensation acknowledges costs of $------ for this item.

95. Upon review, the Tribunal finds that the amount claimed by Equinox is correct. In its claim for compensation, Equinox had simply made a transcription error in the reporting of the profit for this item. Therefore, the Tribunal accepts that, had it been the successful bidder, Equinox would have incurred material costs of $------ in relation to this item.

POS System Software

96. Equinox claimed that costs relating to the provision of an entity-wide software licence, which it notes are based on the actual quoted cost of the software, would have been $------. PWGSC submitted that the cost of the software licence actually proposed by Equinox (i.e. the licence for which Equinox originally bid a price of $------) should be $----------.

97. As the Tribunal has already determined that, had the requirement been properly re-tendered, Equinox would have included in its proposal an amount of $-------- for the provision of an entity-wide software licence, it is clear that the cost figure submitted by PWGSC is not appropriate. However, the Tribunal notes, upon review, that Equinox made a few errors with respect to the cost of certain software items. More specifically, Equinox used a cost of $--- for the “MySQL Database” item when it should have used $---- and, similarly, it used a cost of $--- for the “Remote Administrator” item when it should have used $---.44 Taking these changes into account, the Tribunal has recalculated Equinox’s costs as $------.

98. Therefore, the Tribunal finds that, had it been the successful bidder, Equinox would have incurred costs of $-------- in relation to the provision of an entity-wide software licence.

Employee Wages

99. Equinox claimed that it would have operated with two full-time employees for the duration of the contract and that it would have hired contract installers to assist in the initial installation of the POS system. It submitted that, just as in its previous contracts with CSC, these employees would have been responsible for all deliverables, including the handling of the help desk, software maintenance and peripheral equipment replacement. It estimated its costs for the employees at $------ per year per employee (including employee-related overhead costs) and at $--------- for contract installers during the first year of the contract. It therefore claimed total costs of $--------- for the initial five-year contract period.

100. PWGSC submitted that Equinox’s estimate of $--------- per year in wages for two full-time employees is consistent with information compiled from its financial statements for the years 2001 to 2005. It also submitted that, except for the additional labour cost of $-------- for the first year of the contract, Equinox’s estimated labour costs make no adjustment for the significant increase in the volume of work under the contract held by LGS. However, for the purposes of its own calculations, PWGSC accepted the amount of $--------- claimed by Equinox.

101. The Tribunal is of the view that the amount claimed by Equinox is reasonable, especially in light of the fact that this amount likely included labour costs relating to the implementation of new software interfaces and applications for the POS system and that the Tribunal has already refused to consider any additional revenue from such interfaces and applications for the purposes of the current compensation exercise. Moreover, although PWGSC appears to suggest that Equinox’s estimated labour costs should be increased, it nevertheless relies on these costs as the basis of its own compensation calculations.

102. Therefore, the Tribunal accepts that, had it been the successful bidder, Equinox would have incurred labour costs of $---------.

Overhead Costs

103. Equinox claimed that its overhead costs (i.e. the cost of operating without employees) would have been $--------- per year for a total of $--------- over the duration of the initial five-year contract period. It noted that this amount was established using its 2006 financial data.

104. PWGSC submitted that Equinox implicitly acknowledged in its claim for compensation that the use of its 2006 financial data to estimate overhead costs was inappropriate.45 It submitted that a better estimate of Equinox’s overhead costs is derived from its financial statements for the years 2001 to 2005, which show an average yearly overhead cost of $--------- ($--------- over the five years). It further submitted that, since the initial five-year contract would have been considerably larger than the contracts held by Equinox between 2001 and 2005, the average overhead costs for those years likely underestimates the costs that would have actually been incurred had it been the successful bidder.

105. In response, Equinox submitted that, when the salaries and items such as a research and development credit reimbursement, interest payments and bad debt write-offs that are unique and/or unrelated to the provision of a POS system for CSC are removed, the financial statements for the years 2001 to 2005 confirm the average overhead cost of $--------- per year that it used in its claim for compensation. While it acknowledged that the size of a contract has a major impact on a company’s sales and profits, it submitted that size is not a good predictor of costs, as a larger contract may, for example, simply result in larger invoices as opposed to a larger number of invoices.

106. The Tribunal is of the view that Equinox’s 2006 financial data are not the best indicator of what its overhead costs would have been had it been the successful bidder. It is clear, on the basis of the information provided by Equinox in its claim for compensation, that its situation in 2006 was quite different from what it was in preceding years and from what it would have been had it been the successful bidder.46

107. As for the overhead costs reported in Equinox’s financial statements for the years 2001 to 2005, the Tribunal agrees with Equinox that these would need to be adjusted by removing certain fixed expenses that would not be related to the provision of a POS system for CSC. As the Tribunal has previously stated, “. . . fixed expenses should not be deducted from revenues for the purpose of calculating lost profit.”47 However, in this case, Equinox has failed to precisely identify all the fixed expenses which should be deducted. Moreover, it has failed to provide detailed calculations demonstrating that the removal of these expenses for the years 2001 to 2005 would result in an average yearly overhead cost of $---------. By removing only the items specifically mentioned by Equinox, the Tribunal obtained an average yearly overhead cost of approximately $---------.

108. Despite Equinox’s claim that the size of a contract is not a good predictor of costs, the Tribunal is of the opinion that overhead costs normally increase with the size of a contract. Although the Tribunal recognizes that overhead is a “stepped cost” item and may not always increase in direct proportion to revenue, it is of the view that a large increase in revenue will inevitably lead to an increase in overhead costs.

109. Given the Tribunal’s finding that Equinox would have earned $2,532,009 over the course of five years had it been the successful bidder, it is of the view that overhead costs would have increased from the amounts reported in Equinox’s financial statements for the years 2001 to 2005. This, combined with the Tribunal’s acceptance of the fact that certain fixed expenses should not be taken into consideration for the purposes of the current compensation exercise, leads it to believe that an average yearly overhead cost of $-------- would be reasonable in this case.

110. Therefore, the Tribunal finds that, had it been the successful bidder, Equinox would have incurred average yearly overhead costs of $--------- or $--------- over the initial five-year contract period.

Peripheral Equipment

111. Equinox claimed that the costs relating to the provision of peripheral equipment for the canteens and SGMP programs would have been $----------. It obtained this figure by adding the actual cost of all the peripheral equipment that it originally estimated would have been purchased by CSC during the initial five-year contract period.

112. PWGSC submitted that a reasonable estimate of the cost of peripheral equipment could be derived using 50 percent of the revenue amount that it had previously estimated. It submitted that, while cost, as a percentage of revenue, will vary from item to item, Equinox’s information suggests that 50 percent represents a reasonable estimate. Taking this approach, PWGSC estimated the cost of peripheral equipment at $---------.

113. In response, Equinox submitted that PWGSC’s approach applied an arbitrary 50 percent cost ratio to its incorrect revenue estimate. It submitted that this approach should be rejected, as PWGSC failed to take any steps to establish that it was reasonable.

114. The Tribunal previously found that Equinox, had it been the successful bidder, would have earned $--------- in revenue from sales of peripheral equipment. As this amount differs from the amounts put forth by the parties, it follows that the parties’ above-cost estimates are meaningless.

115. While the Tribunal is of the view that the best approach for estimating the peripheral equipment costs that Equinox would have incurred would be to tally the actual cost of its peripheral equipment that corresponds (i.e. which is equivalent) to the peripheral equipment actually purchased by CSC from LGS, this information has simply not been made available by Equinox. Moreover, although the Tribunal was able to replicate, to a certain degree, Equinox’s revised estimated revenue amount of $----------,48 it does not have, at its disposal, the information necessary to properly estimate the actual cost of the peripheral equipment, which Equinox considers to be equivalent. As such, the Tribunal is compelled to use a cost ratio.

116. The Tribunal notes that a review of Equinox’s prices and costs for the peripheral equipment that it estimated would be required for the canteens and SGMP programs reveals an average cost ratio of approximately 48 percent.49 If the ----------------------- are substituted with -------------, which the Tribunal has already determined should be the case given that only touch pads were mentioned in the RFP, then the average cost ratio increases to approximately 49 percent. The Tribunal therefore considers it reasonable to use a cost ratio of 49 percent to determine Equinox’s costs for the provision of peripheral equipment. Applying this percentage to the estimated revenue amount of $---------- results in an estimated cost of $---------.

117. Therefore, the Tribunal finds that, had it been the successful bidder, Equinox would have incurred costs of $--------- for the provision of peripheral equipment.

Total Costs

118. Taking into consideration the costs indicated above, i.e. $------- for the installation of the POS system at CSC’s national headquarters, $------- for the provision of an entity-wide software licence, $---------- in employee wages, $-------- in overhead costs and $---------- for peripheral equipment, the Tribunal finds that, had Equinox been the successful bidder, it would have incurred total costs of $1,369,991.

Lost Opportunity Calculation

119. In light of the foregoing, the Tribunal considers that revenues of $2,532,009 less total costs of $1,369,991, which equals an amount of $1,162,018, reasonably represents the profit that Equinox would have made had it been the successful bidder for the provision of the POS system for CSC. In accordance with the Tribunal’s recommendation, Equinox’s lost opportunity is calculated as one quarter of this profit amount, or $290,505.

Adjustments to Compensation Amount

120. The Tribunal will now consider whether any adjustments should be made to the compensation amount calculated above in order to account for factors such as the time value of money and the mitigation of damages by Equinox.

Mitigation of Damages

121. PWGSC submitted that Equinox mitigated its loss during the initial five-year contract period, as it supplied services to CSC that were identical to those supplied by LGS. It explained that Equinox’s previous contract with CSC was extended until June 30, 2006, and that Equinox was then awarded a new untendered contract, which was also extended on two separate occasions until March 31, 2007.

122. It submitted that, under these additional contracts, which were awarded to facilitate the transition to the new service supplier (i.e. LGS), Equinox continued to provide services identical to those being supplied by LGS, including software maintenance and support, a help desk and hardware maintenance, and thus mitigated the loss of opportunity to compete for, and potentially profit from, the initial five-year contract held by LGS.

123. PWGSC therefore submitted that the amount of compensation given to Equinox should be reduced by one quarter of the profit that it actually earned under the untendered contract and contract amendments. By applying a profit margin that it derived from its own estimate of Equinox’s total revenues and costs to the amount of $----------, which was paid to Equinox under these additional contracts, PWGSC estimated that Equinox made a profit of $----------. It therefore submitted that the amount of compensation should be reduced by one quarter of this amount, or $--------.

124. Equinox submitted that, during the installation of LGS’s POS system, Equinox’s POS system, which was being replaced, continued to be used and that it therefore continued to provide ongoing support for this system until the new POS system was installed and running. It submitted that the revenue earned under the untendered contract and contract amendments was additional to any revenue that would have been earned had it been the successful bidder. It therefore submitted that, since it would have had these additional contracts in any event, their value cannot be treated as mitigation of its losses resulting from PWGSC’s breaches.

125. As stated above, the goal of the current compensation exercise is to attempt to place Equinox in the situation in which it would have been, but for the government’s breaches. Therefore, the Tribunal is of the view that the amount of compensation that Equinox receives should only be reduced if it can be shown that, but for PWGSC’s breaches, Equinox would not have obtained the untendered contract and contract amendments.

126. In the Tribunal’s opinion, it seems clear that the untendered contract and contract amendments were awarded to Equinox to facilitate the transition from its POS system to the new POS system to be supplied by LGS under the initial five-year contract. As LGS could not install its new POS system immediately upon being awarded the initial five-year contract, Equinox had to provide ongoing support for the existing system until the new system was installed. The Tribunal is of the view that, had Equinox been the successful bidder, it would still have had to provide ongoing support and maintenance on the existing POS system until it installed the new system.

127. In light of the foregoing, the amount of compensation given to Equinox will not be reduced to account for profit that it made on the untendered contract and contract amendments.

Time Value of Money

128. Equinox submitted that, had it been the successful bidder, it would have earned profit beginning in 2006. It submitted that, as the compensation that it receives will come at the end of the contract period, the Tribunal should increase the amount of compensation to reflect the fact that it did not have the ability to invest and use that money since 2006. It submitted that the interest rate on the Equinox mortgage is 7 percent and that this rate should therefore be used for the time value calculation.

129. PWGSC submitted that Equinox has no right under the Tribunal’s recommendation to recover interest that it allegedly paid on an unidentified mortgage. It submitted that, as the Tribunal’s enabling legislation does not provide an express power to award prejudgment interest, or any interest, the Tribunal lacks the authority to award what is, in effect, prejudgment interest on Equinox’s compensation award. It further submitted that the Tribunal’s Guidelines only address the time value of money as a reduction to a compensation award and do not recognize an authority to award prejudgment interest. Finally, it noted that the Tribunal has never required the payment of interest on a compensation award.

130. In response, Equinox submitted that the reference to a mortgage was only made to establish a reasonable basis for the time value calculation. It submitted that a lump-sum award made following contract performance should be adjusted upward to account for the fact that the claimant would have had use of this revenue during the contract period. It submitted that such an approach is consistent with the Guidelines where the Tribunal states that it will attempt, as appropriate in the circumstances of the case, “. . . to place the complainant in the position in which it would have been, but for the government’s breach or breaches.” In its view, a time value calculation can be a means of achieving this result if it allows for an increase or reduction in the lump-sum payment depending on the circumstances. It further submitted that nothing in the Guidelines supports PWGSC’s position that the time value calculation is only intended to operate to the benefit of the government and to the disadvantage of the claimant.

131. Subsection 30.15(2) of the CITT Act provides as follows: “. . . where the Tribunal determines that a complaint is valid, it may recommend such remedy as it considers appropriate, including any one or more of the following remedies: . . . (e) that the complainant be compensated by an amount specified by the Tribunal.” In the Tribunal’s view, such broad language gives it ample discretion to specify an amount of compensation that it considers appropriate. It is important to note that the Tribunal does not have the power to award compensation—it simply has the power to recommend that the complainant be compensated by a specific amount.50 Hence, the Tribunal agrees with PWGSC that it does not have the power to award prejudgment interest. However, it is of the view that it has the power to recommend that interest be included in a compensation amount, and it has indeed done so in the past.51

132. As noted by Equinox, the Guidelines specifically state that, in determining the amount of compensation to recommend, the Tribunal will attempt to place the complainant in the position in which it would have been, but for the government’s breach. In terms of the time value of money, this objective can be achieved by either reducing or increasing the amount of compensation, depending on the circumstances.52

133. While the Tribunal acknowledges that the Guidelines only address the time value of money as a reduction to an amount of compensation, this does not, in any way, fetter the Tribunal’s discretion or prevent it from addressing the time value of money as an increase to an amount of compensation. In any event, the Tribunal notes that the Guidelines were clearly written on the explicitly stated assumption that a recommendation for compensation is usually made “. . . soon after the government’s breach or breaches and before performance under the contract would have taken place.” This is manifestly not the case here.

134. Had Equinox been the successful bidder, it would have begun to earn a profit at the time at which the initial five-year contract was awarded or shortly thereafter. While the Tribunal only recommended that Equinox be compensated for its lost opportunity to profit, it must still be taken into consideration that, if it had been the successful bidder, Equinox could have invested and used the profits earned following contract award. Therefore, the Tribunal will increase the amount of compensation given to Equinox by an amount equal to one quarter of the interest that it would reasonably have earned on its profits of $1,162,018 had it been the successful bidder.

135. The first step in calculating the interest that Equinox would reasonably have earned had it been the successful bidder is to determine the rate to be applied. Equinox submitted that the interest rate on its mortgage is 7 percent and that this rate should therefore be used. The Tribunal is of the view that an interest rate of 7 percent is excessive and that its use is not supported by any information on the record.

136. The Tribunal notes that, in its claim for compensation, Equinox used a rate of 3 percent to calculate the present value of future payments (i.e. the rate used to discount future revenue when the compensation is to be received before performance under the contract takes place). The Tribunal is of the view that this rate is a rate of return that Equinox could reasonably have hoped to get on the market for a no-risk investment. It is also very near the rate that is obtained by taking the average of the prejudgment interest rates prescribed pursuant to the Ontario Courts of Justice Act53 for the last five years. Therefore, the Tribunal will use an interest rate of 3 percent.

137. The second step involves applying the chosen interest rate to the amount of profit that would have been earned by Equinox had it been the successful bidder. The Tribunal recognizes that, had Equinox been the successful bidder, it would have earned a larger proportion of its revenues, and therefore profits, in the first few years of the initial five-year contract period and that this must therefore be taken into consideration when calculating interest. However, as it was not possible for the Tribunal to properly allocate all of Equinox’s costs to the various revenue items described above, it could only determine the amount of profit that Equinox would have earned in each year of the contract by having regard to the estimated amount of revenue, expressed as a percentage of total revenue, that it would have earned in each year.54

138. The Tribunal is of the view that, had Equinox been the successful bidder, it would have earned revenues relating to the supply, installation and acceptance testing of the POS system at CSC’s national headquarters in Ottawa and to the provision of an entity-wide software licence during the first year of the contract.

139. Revenues relating to the provision of software maintenance and support on the licensed software and to help desk and telephone support services would have, for their part, been earned uniformly over the initial five-year contract period. As for revenues earned in relation to the provision of professional services and the sale of peripheral equipment, the Tribunal is of the view that the best indication of when Equinox would have earned such revenues can be obtained by examining the timing of CSC’s actual expenditures under the contract awarded to LGS.55

140. On the basis of this information, the Tribunal finds it reasonable to assume that Equinox (1) would have earned an average of approximately 47 percent of its revenues relating to the provision of professional services in each of the first two years of the contract and an average of approximately 2 percent in each of the following three years, and (2) would have earned an average of approximately 20 percent of its revenues relating to the sale of peripheral equipment in each of the five years.

141. By applying the above revenue allocations to the total amount of profits, the Tribunal estimated that, had it been the successful bidder, Equinox would have earned the following amounts of profit for each year of the initial five-year contract period:56

    Year

    Profit

    1

    $373,717

    2

    $278,202

    3

    $170,033

    4

    $170,033

    5

    $170,033

    TOTAL

    $1,162,018

142. The Tribunal then calculated the interest that Equinox would reasonably have earned on these amounts of profit by assuming that they would have been received at the midway point of each year of the initial five-year contract period (i.e. June 2006 for the first year, June 2007 for the second and so on) and by then applying an annual interest rate of 3 percent compounded on a monthly basis up until the month of June 2011. This resulted in interest of $127,486. One quarter of this amount is $31,872.

143. In light of the foregoing, the Tribunal will increase the amount of compensation given to Equinox by $31,872, which represents one quarter of the interest that it would reasonably have earned on its profits of $1,162,018, had it been the successful bidder for the provision of the POS system.

Tax Liability

144. Equinox submitted that the tax consequences of a lump-sum payment made in a single tax year must be taken into consideration to ensure that Equinox is placed in the position in which it would have been, but for PWGSC’s breaches. It submitted that the tax liability on income received over time is lower than the tax liability on an equivalent lump-sum payment and that, therefore, the Tribunal should increase the amount of compensation given to Equinox to offset the tax burden resulting from a lump-sum payment. It added that not making a recommendation that Equinox be compensated for the additional tax burden would, in fact, be contrary to the Guidelines and the principle that a complainant be placed in the position in which it would have been, but for the government’s breach or breaches.

145. PWGSC submitted that it has no obligation to subsidize Equinox’s tax liability and that the Tribunal lacks the legislative authority to make a monetary award to offset a complainant’s tax liability. It added that the Guidelines do not recognize such authority and that the Tribunal has never required the Crown to make such a payment.

146. As stated above, the language of subsection 30.15(2) of the CITT Act is broad and gives the Tribunal ample discretion to specify an amount of compensation that it considers appropriate. Moreover, the Guidelines specifically state that the purpose of the compensation exercise is to place the complainant in the position in which it would have been, but for the government’s breach. Therefore, the Tribunal is of the view that it could, if it considered it appropriate in the circumstances, recommend that the amount of compensation given to a complainant be increased to offset an additional tax burden resulting from the receipt of a lump-sum payment.

147. Having said this, the Tribunal notes that the Guidelines also specifically state that “[c]ompensation awards will not be based on speculation or conjecture” and that “[t]he complainant bears the onus of proof in establishing a compensation claim.”

148. In the Tribunal’s view, Equinox’s claim that the amount of compensation that it receives should be increased to offset an additional tax burden has not been properly supported. In its claim for compensation, Equinox states that the fiscal impact of a lump-sum payment was calculated using the rates prescribed by law. However, no rates or detailed calculations are provided which would allow the Tribunal to verify Equinox’s assumptions or to recalculate the numbers using revenue and profit amounts that differ from those relied upon by Equinox. Moreover, Equinox failed to provide any information with respect to how the receipt of damages (i.e. an amount of compensation) in this case would actually be treated under the Income Tax Act.57

149. In light of the foregoing, the amount of compensation given to Equinox will not be increased to offset an alleged additional tax burden resulting from the receipt of a lump-sum payment in a single tax year.

Total Amount of Compensation for Lost Opportunity

150. Taking into consideration the amount of $290,505, which represents one quarter of the profit that Equinox would have made had it been the successful bidder for the provision of the POS system for CSC, and adding an amount of $31,872, which represents one quarter of the interest that it would have earned on the aforementioned profit had it been the successful bidder, the Tribunal finds that Equinox is entitled to compensation for its lost opportunity to profit in the amount of $322,377.

COMPLAINT COSTS

151. The Tribunal notes that Equinox and PWGSC have made no submissions contesting the Tribunal’s preliminary indication of the level of complexity for the complaint case or its preliminary indication of the amount of the cost award. Therefore, the Tribunal confirms its preliminary indications and awards Equinox costs in the amount of $4,100 in relation to these proceedings.

CONCLUSION

152. The Tribunal hereby recommends that PWGSC compensate Equinox in the amount of $322,377 for the opportunity that it lost to profit on the provision of the POS system for CSC.

153. In addition, the Tribunal hereby confirms its preliminary indication of the level of complexity for the complaint case and its preliminary indication of the amount of the cost award by awarding Equinox costs in the amount of $4,100 in relation to these proceedings and directs PWGSC to take appropriate action to ensure prompt payment.

1 . R.S.C. 1985 (4th Supp.), c. 47 [CITT Act].

2 . Re Complaint Filed by Les Systèmes Equinox Inc. (20 June 2007), PR-2006-045 (CITT).

3 . The Tribunal’s preliminary indication of the level of complexity for the complaint case was Level 3 and its preliminary indication of the amount of the cost award was $4,100. On July 25, 2007, after having considered the submissions of Equinox and PWGSC, the Tribunal confirmed its preliminary indications by awarding Equinox costs in the amount of $4,100.

4 . Systèmes Equinox Inc. v. Canada (Public Works and Government Services), 2008 FCA 36 (CanLII).

5 . Re Complaint Filed by Les Systèmes Equinox Inc., PR-2006-045R (CITT) [Equinox Remand].

6 . Canada (Attorney General) v. Systèmes Equinox Inc., 2009 FCA 304 (CanLII).

7 . Systèmes Equinox Inc. v. Canada (Public Works and Government Services), 2009 FCA 305 (CanLII). The Tribunal notes that, on October 14, 2009, Equinox filed a notice of discontinuance in respect of its application for judicial review of the Tribunal’s June 20, 2007, determination.

8 . S.O.R./93-602 [Regulations].

9 . Subsection 30.15(2) of the CITT Act simply provides that, where the Tribunal determines that a procurement complaint is valid, it may recommend any remedy that it considers appropriate, including payment of compensation to the complainant in an amount specified by the Tribunal.

10 . See Equinox Remand at paras. 78, 81.

11 . See, for example, the Tribunal’s order in Re Complaint Filed by Douglas Barlett Associates Inc. (7 January 2000), PR-98-050 (CITT).

12 . Section 1.1 of Annex A, “Statement of Work”, to Part B, “Model Contract”, of the RFP provides the following background information in respect of the requirement: “. . . (CSC) operates fifty-one (51) correctional institutions across Canada, housing 12,000 offenders. Each institution operates one or multiple canteens where offenders can purchase consumable items . . . . [E]ach canteen is a small room with a window or wicket that offenders approach to place their orders. Offenders select items from a predetermined list at the canteen window and the canteen operator retrieves the items and records the sale through a point of sale (POS) system.”

13 . PWGSC explained that CSC staff would do all software maintenance and support, equipment repair and replacement and that replacement hardware and peripherals would be ordered in accordance with standard government purchasing processes and instruments.

14 . See Re Complaint Filed By Bluedrop Performance Learning Inc. (25 September 2008), PR-2008-017 (CITT) at paras. 24, 29, where the Tribunal made a specific recommendation in relation to the loss of benefits that would normally arise from incumbency.

15 . [2002] 1 F.C. 292.

16 . The Funding Requirement and Impact of the “Truth in Sentencing Act” on the Correctional System in Canada, Office of the Parliamentary Budget Officer, June 2010.

17 . Section 13.0 of Annex A to Part B of the RFP lists the future interfaces as “Offender Management System” and “Oracle Financials”. Sections 14.0 to 16.0 list the future uses as “Inmate Effects”, “Institutional Services System”, “Data Repository” and “Vending Machines”.

18 . Equinox’s public claim for compensation, 26 March 2010, Annex B (affidavit of Mr. Gilles Goguen) at para. 26.

19 . See sections 13.0 to 16.0 of Annex A to Part B of the RFP.

20 . See PWGSC’s confidential response to the claim for compensation, 11 May 2010, exhibit 5.

21 . The Cost Schedule includes four tables that identify 18 separate items for which the quotation of firm prices or rates was required.

22 . See Equinox Remand at paras. 36-38.

23 . Ibid. 39-40.

24 . See answer to question No. 2 of attachment No. A002 of amendment No. 003 to the RFP issued by PWGSC on July 29, 2005.

25 . Ibid.

26 . In a clarification to its proposal (see confidential complaint, exhibit 5, letter dated October 5, 2005), Equinox explained that the first hour of work of an installer or trainer at each site would be billed at the rate indicated in item No. 001-A (it indicated that the per diem rates were based on 7.5 hours per day) and that all subsequent time would be billed at the rate indicated in item No. 001. In a further clarification (see confidential complaint, exhibit 5, letter dated October 11, 2005), Equinox explained that item No. 001-A was intended to replace and cover the provision for travel and stand-by time.

27 . This figure reflects the amount calculated by Equinox for the installation of the POS system at canteens and for the operation of the small group meal plan (SGMP) programs.

28 . As part of its November 18, 2010, submission, PWGSC provided the Tribunal with an account of CSC’s actual expenditures as of that date. While it did not revise its estimate of Equinox’s revenues in relation to the provision of professional services, it submitted that the most accurate estimate would be provided by using the revised expenditure figures and the corresponding adjustment factor.

29 . See PWGSC’s confidential response to the claim for compensation, 11 May 2010, exhibit 6.

30 . PWGSC calculated average per diem and hourly rates for LGS because LGS had variable rates which increased over the contract period.

31 . See PWGSC’s confidential response to the claim for compensation, 11 May 2010, exhibit 6; PWGSC’s confidential comments on the further submissions by Equinox, 18 November 2010, exhibit 6.

32 . Amounts of $--- for parts and $--- for shipping were also expended under the “Peripheral Equipment Repair” category.

33 . See Equinox’s protected reply submission, 30 June 2010, at para. 108.

34 . Calculated as 5 years divided by 4 years and 343 days.

35 . This also results in an adjusted amount of $--- for parts and $--- for shipping under the “Peripheral Equipment Repair” category.

36 . See Equinox Remand at paras. 33-35.

37 . Equinox’s per diem rate of $--- for item No. 003 was converted into an hourly rate of $-- on the basis of a 7.5-hour workday.

38 . See Equinox’s public reply submission, 30 June 2010, at para. 94.

39 . See PWGSC’s confidential response to the claim for compensation, 11 May 2010, exhibit 6.

40 . The per unit price differential between these two products is $-----, and the number of units actually purchased by CSC from contract award to April 7, 2010, is ---.

41 . The Tribunal was not able to calculate a revised estimate using the number of units actually purchased by CSC from contract award to November 18, 2010, as Equinox’s estimate of $-------, for which it provided no details, was based on the number of units purchased as of April 7, 2010.

42 . Calculated as 5 years divided by 4 years and 118 days.

43 . Other costs pertaining to this item are included in the “Employee Wages” and “Overhead Costs” sections below.

44 . See Equinox’s confidential claim for compensation, 26 March 2010, Annex A, Section V, “Equinox Costs and Profits” (table following para. 130).

45 . Equinox’s confidential claim for compensation, 26 March 2010, at para. 54.

46 . See Equinox’s confidential claim for compensation, 26 March 2010, at para. 54 and Annex B at para. 21.

47 . See order in Re Complaint Filed by Immeubles Yvan Dumais Inc. (7 June 2010), PR-2007-079 (CITT) at para. 72 [Immeubles Yvan Dumais].

48 . See paras. 88, 89.

49 . See Equinox’s confidential claim for compensation, 26 March 2010, Annex A, Section VI, “Projection Details (Existing Institutions)”, items 1.6, 1.8.

50 . This can be contrasted with other legislative provisions which grant the Tribunal authority to make an award. See, for example, subsection 30.15(4) of the CITT Act, where the Tribunal is granted the authority to award a complainant its reasonable costs incurred in preparing a response to the solicitation for the designated contract.

51 . See Immeubles Yvan Dumais at paras. 76-77, where the Tribunal included unearned interest revenue as part of a recommended amount for compensation. The Tribunal notes that this decision was issued after PWGSC filed its submissions wherein it claimed that the Tribunal had never before required the payment of interest on a compensation amount.

52 . For example, the Tribunal can reduce the amount of compensation by undertaking a present value calculation where the contract in question involves future payments (i.e. payments that would have been received after the Tribunal made a recommendation on the amount of compensation). Conversely, the Tribunal can increase the amount of compensation by also undertaking a present value calculation where the contract in question involves past payments (i.e. payments that would have been received before the Tribunal made a recommendation on the amount of compensation).

53 . R.S.O. 1990, c. C-43.

54 . In the absence of detailed information regarding Equinox’s cost allocations, the Tribunal believes that it is reasonable to assume that there exists a direct relation between the amount of revenue that Equinox earned in a given year, expressed as a percentage of total revenue, and the amount of profits that it earned in that same year, expressed as a percentage of total profits.

55 . See PWGSC’s confidential response to the claim for compensation, 11 May 2010, exhibit 6; PWGSC’s confidential comments on the further submissions by Equinox, 18 November 2010, exhibit 6.

56 . For example, on the basis of the estimated revenue allocations at para. 138, the Tribunal determined that Equinox would have earned $814,321 in revenue during the first year of the contract ($-------- for the installation of the POS system at CSC’s national headquarters, $-------- for the software licence, $-------- for software maintenance and support, $----------- for the help desk and telephone support, $---------- for professional services and $--------- for peripheral equipment). This amount represents just over 32 percent of the total amount of revenue that it would have earned over the initial five-year contract period ($2,532,009). Applying this percentage to the total amount of profit that Equinox would have earned over the initial five-year contract period ($1,162,018) yields a profit amount of $373,717 for the first year of the contract. The amounts of profit for the other years were calculated following the same methodology.

57 . R.S.C. 1985 (5th Supp.), c. 1.

Date Modified: 2011-07-05

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